internal control

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  • Created by: Jenny
  • Created on: 13-05-17 12:33

key aspects of the internal control

  • C- the control environment - attitudes and awareness of directors, in effect is the culture of the organisation. the board should foster a honest and ethical culture - by training and maintaining the level of skill and knowlege. 
  • R- risk assessment process- how does the business identify risks and how does it estimate their significance, and how does it decide what actions should be taken.
  • I- the infomation system- procedures both IT and manual which are used to record transactions 
  • C- control activities- these are the detailed policies and procedures that help ensure that management orders are carried out 
  • M- monitoring of controls- internal audits are reports by interal auditors who report findings to managers, there is a senior management review where senior managers test selected parts of their system and finally analysis of outputs from the infomation systems to detect anonmilies or areas of weakness for further investigation. 
  • C- control prodecures - controls that regulate the day to day processing activities 
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effective financial control procedure

  • S-segregration of duties- most important single control activity, no one person should be responsible for the recording and processing of a complete transaction- this reduces risk of error 
  • O- orgnaisation controls- should have a organisational plan which defines and allocates responsibilities - every function should be in the charge of a specified person who is allocated responsibility 
  • A- authorisation and approval -all transactions should require authorisation or approval by an appropriate person.
  • P- physical controls- such as physical custody of assets - limits acess 
  • S- supervision- all actions by all levels of staff should be supervised 
  • P- Personnel- procedures should be designed to ensure that personnel operating a system are competent and motivated to carry out the tasks- can be controlled through promotion training and selection process
  • A- arithmetical procedures- these are function checks, showing that all transactions are included and that they are accurately processed 
  • M- management controls - these are controls exercised by management which are in addition to day to day routine checks of the system - they include overall supervisory controls, comparison of performance against budget and review of management accounting infomation. 
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what are the boards responsibilites for ensuring e

  • the board of directors should maintain a sound system of internal control. the objectives of the internal control system are 
  • assisting in achieving corporate objectives by being able to respond to important business financial and compliance risks 
  • the internal control system assits in ensuring the quality of internal and external reporting 
  • the internal control system also assits in ensuring compliance with laws and regulations. 
  • the board should also make sure that the internal controls system is embedded in the operations of the company and is able to evolve, in order to protect the company from new risks 
  • the board should also review the effectiveness of the internal controls system often, therefore the board have to 
  • consider what the significant risks are to the business and assess how they have been identified, evaluated and managed 
  • assess the effectiveness of the system 
  • consider whether actions are being taken to remedy any significant weaknesses and failings 
  • consider if the findings indicate a need for a more extensive monitoring system 
  • the board also have a responsibility to produce a statement on internal control 
  • the board is required to state in the companys annual report that it is responsible for the system of internal control and for reviewing its effectiveness 
  • should also state there is a system of risk management in place 
  • statement should also give details of the process they used and actions to remedy weakness 
  • outline the processs by which the board has evaluated the effectiveness of the system 
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